ACCA Advanced Audit and Assurance (AAA) Practice Exam

What type of procedures are substantive procedures?

1. Procedures designed to assess internal control effectiveness only

2. Procedures focusing on compliance with management directives

3. Procedures aimed at detecting material misstatements at the assertion level

4. Procedures that assess the likelihood of fraud

The correct answer is: Procedures aimed at detecting material misstatements at the assertion level

Substantive procedures are specifically designed to detect material misstatements at the assertion level in financial statements. This means that these procedures focus on gathering evidence to verify the accuracy and completeness of financial information, which requires auditors to evaluate whether the assertions made by management regarding accounts and disclosures in the financial statements are free from material misstatement. These procedures can include tests of details, which examine individual transactions or balances, and analytical procedures, which assess the reasonableness of financial relationships and trends. The goal of substantive procedures is to provide the auditor with sufficient appropriate evidence to support their opinion on the financial statements as a whole. Other options relate to different aspects of the audit process. Internal control effectiveness is assessed through different types of procedures, while compliance with management directives is more about ensuring adherence to specific policies rather than examining financial misstatements. Assessing the likelihood of fraud involves risk assessment and is not the primary focus of substantive procedures. Thus, the focus of substantive procedures specifically on detecting material misstatement at the assertion level is what makes the correct answer evident.